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Early Marac voting running about 90% in favour of merger

Early voting on the 'heartland bank' merger proposal among Marac debt holders is running at about 90% in favour, says Craig Stephen, chief investment officer who will become treasurer of the new bank.

Wednesday, November 17th 2010, 12:19PM

by Jenny Ruth

Early voting on the 'heartland bank' merger proposal among Marac debt holders is running at about 90% in favour, says Craig Stephen, chief investment officer who will become treasurer of the new bank.

Speaking in Napier at a presentation on the proposed merger between Pyne Gould's Marac with CBS Canterbury and Southern Cross Building which will be listed on NZX, Stephen said a key point was explaining to investors that although their holdings in debentures and bonds will go from being "secured" to "unsecured" their ranking won't change.

While finance companies have made much of their debentures being secured and have often made it sound like it offered greater security than it actually did.

If the merger proceeds, investors will rank equally with the new bank's bankers, Westpac and Bank of New Zealand, Stephen said.

"No one will rank ahead of you post merger who doesn't already rank ahead of you," he said.

Both Westpac and BNZ have done their own analysis "and they're comfortable with their unsecured position."

Arguably, the banks could be said to rank behind the new bank's depositors while the latter are covered by the government guarantee which will be in place until December 31, 2011.

"What it means is you are the first cab off the rank," Stephen said.

Asked how secure Marac's bonds will be post-merger, Stephen said because international ratings agency Standard & Poor's has raised the company's current "BB+" rating to outlook positive status, "you will be in a better position than you were prior to the merger."

Currently, Marac has no debt ranking ahead of its debenture and bond holders but its trust deed allows up to 10%. The merged company will only allow up to 5% of prior ranking debt, although the organisation has no intention of taking on such debt, Stephen says.

While the government guarantee remains in place, the company would also need the New Zealand Treasury's approval.

To succeed, the merger needs 75% of Marac investors to vote in favour as well as a similar number of each building society's investors.

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